Gold smuggling likely to rise 40% this year

The high import duty on gold, local taxes and restrictions on imports are leading to a rise in smuggling of the commodity into the country. Last year, 102 tonnes of gold, or 10 per cent of total imports, made its way through unofficial routes, according to Thomson Reuters GFMS, which compiles data for the World Gold Council. It is estimated this year it could rise to 140 tonnes, an increase of 40 per cent.

Early last year, the government had raised the import duty on gold to four per cent, in two phases. Also, the method of calculating this was changed to ad-valorem. Recently, the Reserve Bank of India (RBI) had asked banks not to import gold on a consignment basis for domestic sales. After this, such imports almost came to a halt and gold imported earlier was sold at huge premiums.

Bachhraj Bamalva, former president of the All India Gems and Jewellery Federation, said, "Currently, for spot delivery of gold, smaller jewellers are paying premium of Rs 500-600/10g. Even after that, gold is not available." He added the import duty, the value-added tax and premiums for spot delivery would only lead to a rise in smuggling.

After gold trade was liberalised and nominated agencies were allowed to import gold, smuggling of the commodity had declined for about 14 years. The sudden spurt in smuggling of gold has opened a Pandora's Box, as payments for gold coming through unofficial routes are made through unofficial sources. About $5 billion worth of smuggled gold would be paid through the havala route, or unofficial channels. If non-resident Indians, as well as Indians working abroad, send remittances to India through the havala route, it provides them a premium on the official exchange rate.

"The government may save dollars that would otherwise have been used to import gold. However, if remittances are diverted to the havala route, the government would lose the inflow of dollars and current account woes would continue," said Bamalva.

An industry official said the government's action against unofficial import of gold and seizures was to the tune of only a few tonnes.

Haresh Soni, president, All India Gems and Jewellery Federation, said, "After RBI's clampdown on gold imports by banks on a consignment basis, the supply channels for jewellers went haywire." Of the 1,000-odd tonnes of gold imports, 70 per cent was through this route, in which payments were made after the gold was actually sold in the Indian market. A total of 230 tonnes were consumed by exporters; the remaining went to the domestic market. Though imports through advance payments are still allowed, these add to costs. Also, as gold demand in the next few months is expected to be low, the demand from jewellers is expected to be need-based. CONCERNS APLENTY

Last year, 102 tonnes of gold made its way into India through unofficial routes

It is estimated this year, flow of gold via unofficial routes could rise to 140 tonnes

High import duty, local taxes and import restrictions are the factors behind the rise

The rise in smuggling has led to concerns of payments through unofficial routes

The Centre's action against unofficial imports was to the tune of only a few tonnes